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Date: Tuesday 13th 2008f May 2008 07:59:02 AM

Glossary
 

I
 

Idle Fund:  Fund that is available for investment and is currently not earning any income.

Our take: It is advisable to put aside some idle fund in case investment opportunity comes up.
 

Idle Time: Time spent by employees doing unproductive things.
Our take: An example would be a lengthy machinary set up where assembly workers cannot do anything but wait.
 

Illiquid Assets: Assets that cannot be readily converted into cash.
Our take: A good example would be: real estate. The process of selling a real estate properties can vary from several days to a month.
 

Imbalance of Orders: A situation where there is too much orders on a particular equity at a particular time.
Our take: The stock exchange will halt trading on equities that experience order imbalance.
 

Immediate or Cancel Order: Trade Order that needs to be executed immediately or else it needs to be cancelled.
Our take: This is used for large transactions where price may fluctuate wildly when the big order is executed.
 

Impact Day: The first day a company offers a secondary offering.
Our take: This will normally cause the stock price to drop since more supply are available to the general public.
 

Impaired Asset: Asset that are worth less than what is stated on the balance sheet.
Our take: This might be due to reckless acquisitions.
 

Impairment: The process of adjusting the value of a specific asset to reflect its market value.
Our take:  Normally, there is no cash outflow associated with impairment.
 
Implicit Cost: Unseen cost that are associated with the lost opportunity of a company's resources.
Our take: This term might be similar to opportunity cost.
 
Import: Buying goods from foreign countries.

Our take: Import uses up a country's foreign reserves since currency is needed to buy goods.
 
In and Out: Refers to the purchase and sale of an equity within a short period of time

Our take: Day traders are famous for using this strategy. They often trade in and out several times in one day.
 
Inactivity Fee: A fee given to brokerage accounts that are not active.
Our take: Smaller and Long term investors who trade infrequently might be affected by the inactivity fee of some brokers.
 

Income: Money received because of the work or investment done by individuals or organizations.
Our take: This means what we get in return of our effort.
 

Income from Operations: Money received as a result of business operations of a firm.
Our take: In a sense, this is similar to operating income.
 

Income Shifting: An attempt to reduce tax by moving income so that he or she belongs to a lower tax bracket.

Our take: Giving to charity can reduce taxable income.
 

Income Statement: A financial report summarizing the revenue and expense of a company during a specific time period.

Our take:  Income statement is looked closely by outsiders as an indicator of financial performance of a firm. It is also called profit and loss statement.

 
Income Stock: Stocks that historically have a high dividend yield and can be used as a source of income for retiree.

Our take: Some stocks may even yield higher than a 10 year-bond. Sectors that prominently give out high dividend includes: consumer staples, energy stocks or bank stocks.

 

Income Tax: A tax paid for any money earned during a particular period, usually yearly.

Our take: Essentially, this include all income earned in the like of capital gain, interest rate, dividend payment and stock option vesting.

 

Incremental Cost: The change in cost for one more unit of production.

Our take: Sometimes, it is also called marginal cost.

 

Independent Auditor: An external auditor that provides objective opinions about the financial state of the audited firm.

Our take: Management of the audited company should not exert any influence on the auditor's result.

 
Index Fund: Portfolio management that mimics the component of a stock market index.
Our take: This is a passive investment method that is guaranteed to have the same return as the stock market index. Historically, US stock market index such as Dow Jones Industrial Average has returned about 10.5 % annually since World War II.
 
Indicated Dividend: total dividend that will be paid over the next year if the dividend level remains the same.
Our take: For example if Merck Co & Inc. decide to pay $ 0.38/share of quarterly dividend, indicated dividend for Merck is $ 1.52/share annually.
 
Indicated Yield: The yield that a stock will give, if current indicated dividend is accurate.
Our take: Indicated yield fluctuates daily based on the movement of the stock price itself.
 
Indicator: Any data or feedback that is used to predict future economic performance.
Our take: While having a lot of indicators is nice, there is no one indicator that can predict the future with 100% accuracy as the world keeps changing all the time.
 
Indirect tax: Tax that are incurred by consumers in the form of other price increase.
Our take: For example: a poorly built road is one form of indirect tax as it increases the cost of replacing the tires.
 
Industry: Refer to the primary business that a firm is currently indulged in.
Our take: When investors classify Microsoft as a software company, they look at the main revenue stream for Microsoft. In this case, Microsoft derives more than 50 % of its revenue from software applications.
 
Inefficient Market: A market where current price of an item does not reflect its fair value.
Our take: In an efficient market the price of a security or good will be either overvalued or undervalued. This allows speculators to profit from it.
 
Inflation: The rate in which a currency loses its purchasing power with respect to tangible goods from gold to dairy products.
Our take: Developing countries normally have a higher rate of inflation due to the instability of its central bank.
 
Inflation-indexed Security: A financial instrument that guarantees the return exceeding the rate of inflation if held until maturity.
Our take: An example include TIPS ( Treasury Inflation Protected ) bond
 
Inflationary risk: Risk associated with the future rate of inflation.
Our take: When the perceived inflation risk is high, investors normally want to be compensated higher than when inflation risk is low.
 
Inheritance: The physical assets of a deceased person that is given to the person of his choosing.
Our take: The United States use to have the highest inheritance tax in the world at 50% rate.
 
Initial Public Offering (IPO): The first time a company's shares are offered for sale to the general public.
Our take: Before IPO, only insiders can trade the company's shares. Buying and selling the stock is hard since liquidity is virtually non-existent.
 
Inside Director: member of a company's board that has direct stake in the company or is an employee.
Our take: Inside director will be more keen in growing the company since he has a stake in the company in question.
 
Insider: Any individuals that have crucial information that is only readily available to persons outside the corporation.
Our take: Managers and the board of directors can be considered insiders.
 
Insider Trading: Insider that trades based on non-public information that he obtain.
Our take: It is illegal when insider trades based on private information.
 
Insolvency: Refer to a company who cannot satisfy its debt obligations.
Our take: Debt obligations involve paying interest payments and maintaining certain cash level on its balance sheet.
 
Instinet: An electronic matching system that allows market participants to post bid and ask bypassing the role of specialists.
Our take: With instinet, transaction occurs faster and more efficiently.
 
Institutional Investor: An entity that trades at a huge number of shares and it has the influence on the market it is in.
Our take: Knowing when these investors make trades is extremely useful as they are generally more knowledgeable than the regular investors.
 
Insurance: A financial hedging where the individual or organization receives financial reimbursement against losses specified in the agreement.
Our take: Various form of insurance exists such as: theft, fire, accident, health,  life insurance.
 
Intangible Asset: Assets that are not visible to the eye.
Our take: For example: patent protection, brand name, intellectual property. Intangible asset is more difficult to imitate. Therefore, nowadays, most companies concentrate more in developing their intangible asset.
 
Interest: The amount of money paid in exchange for the rights to obtain a loan.
Our take: Lenders make money by borrowing money to borrowers and receiving interest from the proceed.
 
Interest Coverage Ratio: A ratio indicating if a company can cover its interest payment from the profit generated from its business operations.
Our take: The higher this ratio, the more leeway a company has to pay off its interest payment.
 
Interest Expense: The amount of money used to pay off interest payment of a loan for a given time period.
Our take: When a company has no long term debt or other loans, interest expense is equal to zero.
 
Interest Only (IO) Strip: A security based solely on the interest payments of a loan.
Our take: When the loan is repaid, the interest payment will stop and the IO strip is worth zero.
 
Interest Rate: The annual rate of payments a lender will get if he loans it to a borrower.
Our take: Interest rate is normally expressed as percentage.
 
Interest Rate Ceiling: The highest interest rate a financial institution is allowed to charge for mortgage loans
Our take: This ceiling is regulated by the government. Financial institution that charges outrageously high interest rate is referred to as loan shark.
 
Interest Rate Risk: The risk that an investment will fluctuate in value due to the change in future interest rate.
Our take: For example, if interest rate rises from 2 to 6 % in a year, an investment returning 5 % will not be attractive one year from now.
 
Interest Sensitive Stock: A stock that is highly sensitive to the change in interest rate.
Our take: For example, bank stocks are extremely sensitive to the interest rate change. When interest rate rises, the bank makes less money due to the narrowing spread of which it can profit.
 
Internal Audit: Audit performed by auditors who are employed by the firms being audited.
Our take: Internal Audit is generally less formal than audit performed by independent auditors. It is a way to detect accounting irregularities before independent auditors found it.
 
Internal Growth Rate: Growth achieved by a firm without using external financing.
Our take: The rate is expressed in percentage and is calculated by dividing retained earning with total assets.
 
Internal Revenue Service (IRS): A US government agency that is responsible for tax collection
Our take: In addition, IRS also enforce individuals to pay taxes as what is required by the law.
 
Internalization: An event where a brokerage firm decide to execute a trade by using up its inventory of stocks.
Our take: Most brokerage firms has certain inventory level for equities. This is to help them achieve 100% trade execution level if needed.
 
International Monetary Fund (IMF): An International Agency created to promote global monetary stability and to assist developing countries proper funding to resume their economic growth.
Our take: In the 1998 Asian Crisis, IMF lent a hand by providing loans to several Asian countries which include: South Korea, Thailand and Indonesia.
 
Internet Service Provider (ISP): A company that provides consumers and business with access to the internet.
Our take: In recent years, service provided by ISP has broadened into webhosting, instant messaging, search engine, email service, virus protection or even blogging services.
 
Intrinsic Value: The fair value of a company based on specific valuation techniques imposed on it.
Our take: For example the intrinsic value of a company based on asset valuation is the value of all combined assets when sold at current market value.
 
Inventory: The value of goods available for sale. This varies among industries.
Our take: For example: Computers and hard drive can be considered as inventory for Dell Computer while it is considered as a long-term asset for Nordstrom.
 
Inventory Turnover: The rate at which the whole inventory get sold over a specific time period.
Our take: The higher the inventory turnover is, the more efficient a firm is. This is because for the same amount of sales, the firm only need smaller amount of inventory compared to its peers.
 
Investing: The act of allocating money into other assets in the effort to grow it further.
Our take: Without investing, our purchasing power will be slowly eaten by inflation.
 
Investment: An asset that are purchased in the hope that it would go up in value in future years.
Our take: Investment can be buying stocks, cars, real estate, baseball cards, gas stations and so forth.
 
Investment Advisor: An individual making recommendations about investing and asset allocation.
Our take: Investment Advisor is compensated either by commissions or by performance.
 
Investment Banker: A person representing big financial institution whose job is to raise capitals for corporations
Our take: When a company is filing for IPO, investment banker is the person to go.
 
Investment Club: A group of people who meets and discuss regularly about investments. Once discussed, they are then will pool money to buy a stock that is agreed upon.
Our take: Investment Club is a terrific way to learn investing as members will share ideas and philosophies on how to best invest our money.
 
Investment Grade: Credit rating of a company that is deemed to be safe for investments.
Our take: Investment Grade Company has a low debt level and high profitability. Basically, the higher the credit rating is, the lower the risk of a company going belly-up.
 
Investment Income: Getting an stream of income while investing in assets.
Our take: This includes: interest payments on bond, dividends from common stock or rent income from buying a real estate properties.
 
Investment Real Estate: Buying a piece of real estate in the hope of earning money.
Our take: The primary income of real estate is from rents.
 
Investment Strategy: Plan to maximize their investment returns while minimizing risk.
Our take: Investment Strategy include: dollar-cost averaging, asset allocation, buy and sell point and hedging.
 
Investor Relation: A department in a publicly traded company that exists to serve the need of investors about the information of that company.
Our take: We can request information regarding the company by contacting investor relation. While they won't comply to every investors' request, they will be helpful for investors to get documents such as annual filing and the like.
 
IPO Lock Up: It is an agreement where insiders and its investment bankers agree not to sell any shares
Our take: When the Lock Up period expires (usually 90 days after IPO), insiders and bankers are then free to sell the shares that they own.
 
Irrational Exuberance: Phrase to describe unrealistic expectations by investors to achieve a high return on their investment.
Our take: During the irrational exuberance period of the late 90s, survey shows that investors expect the stock market to return 25% over the next decade. Historically, stock market gives investors return of 10.5% for the previous 5 decades.
 
Issued Shares: The amount of shares that are sold to the shareholders of the company.
Our take: This includes shares held by the management as well.
 

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